Finance Receivables

Finance receivables, net at December 31 for the past five years were as follows (in thousands):



	2015			2014			2013			2012			2011
Wholesale
United States	$	965,379		$	903,380		$	800,491		$	776,633		$	778,320
Canada	58,481			48,941			44,721			39,771			46,320
Total wholesale	1,023,860			952,321			845,212			816,404			824,640
Retail
United States	5,803,071			5,398,006			5,051,245			4,850,450			4,858,781
Canada	188,400			209,918			213,799			222,665			228,709
Total retail	5,991,471			5,607,924			5,265,044			5,073,115			5,087,490
	7,015,331			6,560,245			6,110,256			5,889,519			5,912,130
Allowance for credit losses	(147,178		)	(127,364		)	(110,693		)	(107,667		)	(125,449		)
Total finance receivables, net	$	6,868,153		$	6,432,881		$	5,999,563		$	5,781,852		$	5,786,681

HDFS offers wholesale financing to the Company’s independent dealers. Wholesale loans to dealers are generally secured by financed inventory or property and are originated in the U.S. and Canada. Wholesale finance receivables are related primarily to motorcycles and related parts and accessories sales.

HDFS provides retail financial services to customers of the Company’s independent dealers in the U.S. and Canada. The origination of retail loans is a separate and distinct transaction between HDFS and the retail customer, unrelated to the Company’s sale of product to its dealers. Retail finance receivables consist of secured promissory notes and secured installment contracts and are primarily related to sales of motorcycles to the dealers’ customers. HDFS holds either titles or liens on titles to vehicles financed by promissory notes and installment sales contracts. As of December 31, 2015 and 2014, approximately 12% of gross outstanding finance receivables were originated in Texas; there were no other states that accounted for more than 10%.

Unused lines of credit extended to the Company's wholesale finance customers totaled $1.27 billion and $1.01 billion at December 31, 2015 and 2014, respectively. Approved but unfunded retail finance loans totaled $169.6 million and $168.7 million at December 31, 2015 and 2014, respectively.

Wholesale finance receivables are generally contractually due within one year. On December 31, 2015, contractual maturities of finance receivables were as follows (in thousands):



	United States		Canada		Total
2016	$	1,991,614	$	93,539	$	2,085,153
2017	1,104,233		37,415		1,141,648
2018	1,234,333		41,339		1,275,672
2019	1,379,791		45,673		1,425,464
2020	1,024,927		28,915		1,053,842
Thereafter	33,552		—		33,552
Total	$	6,768,450	$	246,881	$	7,015,331

The allowance for credit losses on finance receivables is comprised of individual components relating to wholesale and retail finance receivables. Changes in the allowance for credit losses on finance receivables by portfolio for the year ended December 31 were as follows (in thousands):



	2015
	Retail			Wholesale		Total
Balance, beginning of period	$	122,025		$	5,339	$	127,364
Provision for credit losses	98,826			2,519		101,345
Charge-offs	(123,911		)	—		(123,911		)
Recoveries	42,380			—		42,380
Balance, end of period	$	139,320		$	7,858	$	147,178



	2014
	Retail			Wholesale		Total
Balance, beginning of period	$	106,063		$	4,630	$	110,693
Provision for credit losses	80,237			709		80,946
Charge-offs	(102,831		)	—		(102,831		)
Recoveries	38,556			—		38,556
Balance, end of period	$	122,025		$	5,339	$	127,364



	2013
	Retail			Wholesale			Total
Balance, beginning of period	$	101,442		$	6,225		$	107,667
Provision for credit losses	61,603			(1,595		)	60,008
Charge-offs	(97,928		)	—			(97,928		)
Recoveries	40,946			—			40,946
Balance, end of period	$	106,063		$	4,630		$	110,693

There were no finance receivables individually evaluated for impairment on December 31, 2014 or 2015. The allowance for credit losses and finance receivables by portfolio collectively evaluated for impairment, at December 31 were as follows (in thousands):



	2015
	Retail		Wholesale		Total
Allowance for credit losses, ending balance:
Individually evaluated for impairment	$	—	$	—	$	—
Collectively evaluated for impairment	139,320		7,858		147,178
Total allowance for credit losses	$	139,320	$	7,858	$	147,178
Finance receivables, ending balance:
Individually evaluated for impairment	$	—	$	—	$	—
Collectively evaluated for impairment	5,991,471		1,023,860		7,015,331
Total finance receivables	$	5,991,471	$	1,023,860	$	7,015,331
	2014
	Retail		Wholesale		Total
Allowance for credit losses, ending balance:
Individually evaluated for impairment	$	—	$	—	$	—
Collectively evaluated for impairment	122,025		5,339		127,364
Total allowance for credit losses	$	122,025	$	5,339	$	127,364
Finance receivables, ending balance:
Individually evaluated for impairment	$	—	$	—	$	—
Collectively evaluated for impairment	5,607,924		952,321		6,560,245
Total finance receivables	$	5,607,924	$	952,321	$	6,560,245

Finance receivables are considered impaired when management determines it is probable that the Company will be unable to collect all amounts due according to the loan agreement. As retail finance receivables are collectively and not individually reviewed for impairment, this portfolio does not have specifically impaired finance receivables. At December 31, 2015 and 2014, there were no wholesale finance receivables that were on non-accrual status or individually deemed to be impaired under ASC Topic 310, “Receivables”.

An analysis of the aging of past due finance receivables at December 31 was as follows (in thousands):



	2015
	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Total Finance Receivables
Retail	$	5,796,003	$	118,996	$	43,680	$	32,792	$	195,468	$	5,991,471
Wholesale	1,022,365		888		530		77		1,495		1,023,860
Total	$	6,818,368	$	119,884	$	44,210	$	32,869	$	196,963	$	7,015,331



	2014
	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Total Finance Receivables
Retail	$	5,427,719	$	113,007	$	38,486	$	28,712	$	180,205	$	5,607,924
Wholesale	951,660		383		72		206		661		952,321
Total	$	6,379,379	$	113,390	$	38,558	$	28,918	$	180,866	$	6,560,245

The recorded investment of retail and wholesale finance receivables, excluding non-accrual status finance receivables, that were contractually past due 90 days or more at December 31 for the past five years was as follows (in thousands):



	2015		2014		2013		2012		2011
United States	$	31,677	$	27,800	$	23,770	$	26,500	$	27,171
Canada	1,192		1,118		1,031		1,533		1,207
Total	$	32,869	$	28,918	$	24,801	$	28,033	$	28,378

A significant part of managing the Company's finance receivable portfolios includes the assessment of credit risk associated with each borrower. As the credit risk varies between the retail and wholesale portfolios, the Company utilizes different credit risk indicators for each portfolio.

The Company manages retail credit risk through its credit approval policy and ongoing collection efforts. The Company uses FICO scores, a standard credit rating measurement, to differentiate the expected default rates of retail credit applicants enabling the Company to better evaluate credit applicants for approval and to tailor pricing according to this assessment. Retail loans with a FICO score of 640 or above at origination are considered prime, and loans with a FICO score below 640 are considered sub-prime. These credit quality indicators are determined at the time of loan origination and are not updated subsequent to the loan origination date.

The recorded investment of retail finance receivables, by credit quality indicator, at December 31 was as follows (in thousands):



	2015		2014
Prime	$	4,777,448	$	4,435,352
Sub-prime	1,214,023		1,172,572
Total	$	5,991,471	$	5,607,924

The Company's credit risk on the wholesale portfolio is different from that of the retail portfolio. Whereas the retail portfolio represents a relatively homogeneous pool of retail finance receivables that exhibit more consistent loss patterns, the wholesale portfolio exposures are less consistent. The Company utilizes an internal credit risk rating system to manage credit risk exposure consistently across wholesale borrowers and evaluates credit risk factors for each borrower. The Company uses the following internal credit quality indicators, based on an internal risk rating system, listed from highest level of risk to lowest level of risk, for the wholesale portfolio: Doubtful, Substandard, Special Mention, Medium Risk and Low Risk. Based upon management’s review, the dealers classified in the Doubtful category are the dealers with the greatest likelihood of being charged-off, while the dealers classified as Low Risk are least likely to be charged-off. The internal rating system considers factors such as the specific borrower's ability to repay and the estimated value of any collateral. Dealer risk rating classifications are reviewed and updated on a quarterly basis.

The recorded investment of wholesale finance receivables, by internal credit quality indicator, at December 31 was as follows (in thousands):



	2015		2014
Doubtful	$	5,169	$	954
Substandard	21,774		7,025
Special Mention	6,271		—
Medium Risk	11,494		11,557
Low Risk	979,152		932,785
Total	$	1,023,860	$	952,321